Secured Lines of Credit, Long-term Debt, and Notes Due to Employees

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Secured Lines of Credit, Long-term Debt, and Notes Due to Employees

The Company’s outstanding note payable indebtedness was as follows as of (in thousands):

		June 30, 2016 (Unaudited)			December 31, 2015
Hannoversche Volksbank credit line #1	$	1,443		$	1,120
Hannoversche Volksbank credit line #2		428			383
Hannoversche Volksbank term loan #1		31			61
Hannoversche Volksbank term loan #2		-			24
Hannoversche Volksbank term loan #3		154			182
Secured Promissory Notes		650			500
DZ Equity Partners Participation rights		833			818
Total		3,539			3,088
Discount on secured promissory notes and debt issuance costs		(31	)		(110	)
Less current portion of long-term debt		(3,415	)		(2,857	)
Long-term debt	$	93		$	121

In July 2006, MEDITE GmbH, Burgdorf, entered into a master line of credit agreement #1 with Hannoversche Volksbank. In 2015, the credit line was reduced to Euro 1.1 million ($1.2 million as of June 30, 2016). The credit line was increased to Euro 1.3 million ($1.4 million as of June 30, 2016) in April 2016 through September 30, 2016, at such time the line will revert back to Euro 1.1 million ($1.2 million as of June 30, 2016).  Borrowings on the master line of credit agreement #1 bears interest at a variable rate based on Euribor (Euro Interbank Offered Rate) depending on the type of advance elected by the Company and defined in the agreement. Interest rates depending on the type of advance elected ranged from 3.77 – 8.00% during the period ended June 30, 2016 and the year ended December 31, 2015. The line of credit has no stated maturity date. The line of credit is collateralized by the accounts receivable and inventory of MEDITE GmbH, Burgdorf, and a mortgage on the buildings owned by the Company and is guaranteed by Michaela Ott and Michael Ott, stockholders of the Company.

In June 2012, CytoGlobe, GmbH, Burgdorf, entered into a line of credit agreement #2 with Hannoversche Volksbank. The line of credit granted a maximum borrowing authority of Euro 400,000 ($444,160 as of June 30, 2016). Borrowings on the master line of credit agreement #2 bears interest at a variable rate based on Euribor (Euro Interbank Offered Rate) depending on the type of advance elected by the Company and defined in the agreement. Interest rates ranged from 3.77 – 8.00% during the period ended June 30, 2016 and the year ended December 31, 2015. The line of credit has no stated maturity date. The line of credit is collateralized by the accounts receivable and inventory of CytoGlobe GmbH, Burgdorf and is guaranteed by Michaela Ott and Michael Ott, stockholders of the Company, and the state of Lower Saxony (Germany) to support high-tech companies in the area.

In December 2006, MEDITE GmbH, Burgdorf, entered into a Euro 500,000 ($555,200 as of June 30, 2016) term loan agreement #1 with Hannoversche Volksbank with an interest rate of 3.4% per annum. The term loan has a maturity of September 2016 and requires semi-annual principal payments of approximately Euro 27,780 ($30,847 as of June 30, 2016). The term loan is guaranteed by Michaela Ott and Michael Ott, stockholders of the Company, and a mortgage on the property of the Company. 

In June 2006, MEDITE GmbH, Burgdorf, entered into a Euro 400,000 ($444,160 as of June 30, 2016) term loan #2 with Hannoversche Volksbank with an interest rate of 3.6 % per annum. The term loan had a maturity of June 2016 and required 18 semi-annual principal repayments of approximately Euro 22,220 ($24,673 as of June 30, 2016).  The term loan was guaranteed by Michaela Ott and Michael Ott, stockholders of the Company, and was collateralized by subordinated assignments of all of the receivables and inventories of MEDITE GmbH, Burgdorf and also had a subordinated pledge of share term life insurance policies. The term loan was paid in full at June 30, 2016.

In November 2008, MEDITE GmbH, Burgdorf, entered into a Euro 400,000 ($444,160 as of June 30, 2016) term loan #3 with Hannoversche Volksbank with an interest rate of 4.7% per annum. The term loan has a maturity of December 31, 2018, and requires quarterly principal repayments of Euro 13,890 ($15,423 as of June 30, 2016). The term loan is guaranteed by Michaela Ott and Michael Ott, stockholders of the Company, and is collateralized by a partial subordinated pledge of the receivables and inventory of MEDITE GmbH, Burgdorf.

 In March 2009, the Company entered into a participation rights agreement with DZ Equity Partners in the form of a debenture with a mezzanine lender who advanced the Company up to Euro 1.5 million, ($1.7 million as of June 30, 2016) in two tranches of Euro 750,000 each, ($832,800 as of June 30, 2016). The first tranche was paid to the Company at closing with the second tranche being conditioned on MEDITE GmbH, Burgdorf and its subsidiaries hitting certain performance targets. Those targets were not met and the second tranche was never called. The debenture pays interest at the rate of 12.15% per annum and matures at the time the German financial statements are issued, anticipated to be May 31, 2017. 

On December 31, 2015, the Company entered into a Securities Purchase Agreement (the “2015 Purchase Agreement”) with seven (7) individual accredited investors  (collectively the “Purchasers”), pursuant to which the Company agreed to issue to the Purchasers secured promissory notes in the aggregate principal amount of $500,000 with interest accruing at an annual rate of 15% (the “Note(s)”) and warrants to purchase up to an aggregate amount of 250,000 shares of the common stock, par value $0.001) per share, of the Company (the “Warrant(s)”). The Warrants had an initial exercise price of $1.60 per share, which were subject to adjustment, and are exercisable for a period of five (5) years. March 15, 2016, the Board of Directors agreed to renegotiated terms with the warrant holders to remove the anti-dilution and down round price protection features in the warrant agreement and fixed the exercise price at $.80. The warrants issued with the Notes were increased from 250,000 to 500,000.  The Notes matured on March 31, 2016 and were not repaid. Therefore, the Notes were in default on April 1, 2016. The Company agreed to pay the Purchasers 10% of the principal balance of the Notes in warrants until the principal balance is repaid. For the months of April, May, and June 2016 the Company issued an aggregate of 150,000 warrants with an estimated fair value of $50,850 which was recorded as additional paid in capital and interest expense during the three months ended June 30, 2016 (See Also Note 10). The Notes are secured by the Company’s accounts receivable and inventories held in the United States.

On December 31, 2015, the Company recognized the fair value of the original Warrants issued with the secured promissory notes of $90,000 as a discount on the debt.  On March 15, 2016, the Company recorded an additional discount of $90,000 for the additional Warrants issued in connection with the renegotiated terms as discussed above.  As of June 30, 2016, the discounts have been fully amortized into interest expense as the related Notes matured on March 31, 2016.  There were no such arrangements during the same period in 2015.  See Note 8 for further disclosure of the Warrants.

One of the Purchasers of a $100,000 secured promissory note (see above) was elected to the Board of Directors to serve as Director and Chairman of the Company’s audit committee.

On May 25, 2016, the Company entered into a Securities Purchase Agreement (the “May Purchase Agreement”) with two (2) individual accredited investors, one of which who serves on the Company’s  Board of Directors (collectively the “May Purchasers”), pursuant to which the Company agreed to issue to the May Purchasers secured promissory notes in the aggregate principal amount of $150,000 (the “May Note(s)”) with an interest rate of 15% and warrants to purchase up to an aggregate amount of 150,000 shares of the common stock, par value $0.001 per share, of the Company (the “May Warrant(s)”). The Notes mature on the earlier of the third (3rd) month anniversary date following the Closing Date, as defined in the Note, or the third (3rd ) business day following the Company’s receipt of funds exceeding one million dollars ($1,000,000) from an equity or debt financing, not including the financing contemplated under the May Purchase Agreement. The May Notes may be converted into Units issued pursuant to the Company’s private financing of up to $5,000,000 (the “Follow On Offering”) Units at a price of $.80/Unit (the “Units”) consisting of: (i) a  2 year unsecured convertible note, which converts into shares of common stock at an initial conversion price of $.80 per share and (ii) a warrant to purchase one half additional share of common stock, with an initial exercise price equal to $.80 per share (the “Follow On Warrant”).

The May Notes are secured by a security agreement (the “Security Agreement(s)”). The May Notes are secured by the Company’s accounts receivable and inventories held in the United States. The May Warrants have an initial exercise price of $.80 per share and are exercisable for a period of five (5) years.  The Company recorded a debt discount of $50,850 attributed to the warrants and amortized approximately $19,775 to interest expense for the three and six months ended June 30, 2016.The Company was in default with regard to the May notes at August 25, 2016. As a result, a penalty representing 15,000 warrants per month valued at $5,085 will accrue as long as the note remains in default status.

The Company engaged TriPoint Global Equities, LLC (the “Agent”) as placement agent in connection with the sale of securities in the offering (the “Offering”) and agreed to pay the Agent (i) cash commissions equal to three percent (3%) of the gross proceeds ($4,500) received by the Company; and (ii) warrants to purchase such number of securities equal to three percent (3%) of the aggregate number of shares of common stock issuable in connection with the Offering (the “Agent Warrant(s)”). The Agent’s Warrants will have the same terms and conditions as the May Warrants purchased by the May Purchasers.

In November 2015 and February 2016, the Company entered into promissory notes totaling $927,000 with certain employees to repay wages earned prior to December 31, 2014 not paid (“Notes Due to Employees").  The Notes Due to Employees are to be paid monthly through September 2019, with no interest due on the outstanding balances.  The monthly amounts increase over the payment term.  The amounts due become immediately due and payable if payments are more than ten days late either one or two consecutive months as defined in the agreement with the employee.  At June 30, 2016, $679,000 of the total Notes Due to Employees outstanding of $877,000 is in default due to two consecutive monthly payments not being made on certain notes.  Therefore, the total balance outstanding on the default notes have been presented as current on the consolidated balance sheets.  Certain employees may convert any of the amounts owed during the duration of the note to equity at a discounted price as defined in the agreement. The Company is currently in default on these notes. As a result, all notes are payable on demand. The Company is currently negotiating with the employees whose notes are in default to extend payment terms.